Smart strategies
for protecting you
and your family
2010
What are the facts?
Did you know,
60% of Australian
families with
dependants will
run out of money
within 12 months
if the main income
earner dies1?
Also, one in three Australians could be
disabled for more than three months
before turning 65 2.
These are sobering facts and they are
a reminder that life can often throw in a
few curve balls.
No one expects sudden death,
accident or illness – but what if
something did happen? How would
you and your family cope financially?
Before the age of 703…
In this booklet we explain how
insurance can be used to provide
financial protection in a range
of scenarios.
Insurance is the cornerstone
of a comprehensive financial
plan and can help to minimise
the financial impact of events
beyond your control.
To find out which strategies in
this booklet suit your needs and
circumstances, we recommend
you speak to a financial adviser.
20%
21%
3%
12%
4%
15%
41%
If you’re a business owner, you
may need to consider a range
of other protection strategies
that are outlined in our ‘Smart
strategies for protecting business
owners’ guide. To obtain a copy,
speak to your financial adviser or
call MLC on 132 652.
4%
14%
1%
7%
58%
Statistically, before the age of 70:
Will be diagnosed with cancer
Will have a heart attack
Will suffer a stroke
Will suffer from another
critical illness
Will die from something
other than a critical illness
Will not have suffered a
critical illness
Source: Munich Reinsurance Group in
Australasia, 2009.
1 TNS Research, ‘Investigating the Issue of Underinsurance in Australia’, August 2005.
2 Institute of Actuaries of Australia, 2007.
3 This is general population data based on those who are currently 30.
Important information
The information and strategies provided are based on our interpretation of relevant taxation and superannuation laws as at 1 January 2010. Because the laws are
complex and change frequently, you should obtain advice specific to your own personal circumstances, financial needs and investment objectives before you
decide to implement any of these strategies.
Contents
What types of insurance are
available?
02
Strategies at a glance
03
One Minute Insurance Check
20
Strategy 1
Protect your greatest asset
– your income
04
Keep your insurance 21
going in tough times
Strategy 2
Eliminate debt on death,
disability or illness
06
Frequently Asked Questions
22
Strategy 3
Maintain your family’s living standard
08
Glossary
26
Strategy 4
Protect the homemaker
10
Strategy 5
Treat your beneficiaries equitably 12
Strategy 6
Protect your retirement plans 14
Strategy 7
Purchase Life and TPD
insurance tax‑effectively
16
Strategy 8
Reduce the long-term cost
of your insurance
18
Page 01
What types
of insurance
are available?
There are four main
types of insurance
that can be used to
provide financial
protection for you
and your family.
The table below summarises these types of insurance and some of the key personal
protection needs they could meet. For information on the tax treatment, see FAQs on
pages 22 to 25.
Income
Protection
insurance
Income Protection insurance can provide a monthly payment of up
to 75% of your income if you are temporarily unable to work due
to illness or injury. This money can be used to meet your ongoing
living expenses and financial commitments while you recover
(see Strategy 1).
Critical Illness
insurance
Critical Illness insurance can pay a lump sum if you suffer or
contract a critical condition specified in the policy (eg cancer,
a heart attack or a stroke). This money could be used to:
• cover medical and other expenses such as rehabilitation,
childcare and housekeeping (see Strategy 4), and
• clear some or all of your debts (see Strategy 2).
Note: While many people aren’t aware of this type of insurance, its
importance cannot be over-emphasised. This is because Australian males
and females between age 25 and 40 are, for example, three and five times
more likely to become critically ill than die1.
Total and
Permanent
Disability (TPD)
insurance
TPD insurance can provide a lump sum payment2 if you suffer a total
and permanent disability and are unable to work again. This money
could be used to:
• clear your debts (see Strategy 2), and
• cover medical and rehabilitation expenses.
Life insurance
Life insurance can provide a lump sum payment2 in the event of your
death. This money could be used to:
• clear your debts (see Strategy 2)
• enable your family to meet their ongoing living expenses and
maintain their lifestyle (see Strategy 3)
• cover other expenses such as childcare and housekeeping
(see Strategy 4), and
• treat your beneficiaries equitably (see Strategy 5).
Note: These insurances are all subject to terms, conditions and exclusions. You should refer to the
relevant policy document for the full terms and conditions of the insurance cover provided by the product.
How much cover is enough?
To find out whether you have enough insurance, we recommend you seek
financial advice. An adviser can assess your needs and tailor a protection plan for
you and your spouse.
You may also want to go to mlc.com.au where you can access our Insurance Gap
Calculator. Whilst not a substitute for financial advice, this calculator can help you
determine your insurance needs.
1 Based on MLC’s claims experience.
2 If the insurance cover is held within a super fund, the benefit may also be paid in the form
of an income stream.
Page 02
Strategies
at a glance
Strategy
Suitable for
Key benefits
Page
People who are employed or self-employed
• Receive an income if unable to work due to illness
or injury
• Meet your living expenses while you recover
04
People with debts
• Clear your debts
• Pass on the full value of assets to your dependants
06
People with a dependent family
• Generate an ongoing income
• Help your family meet their living expenses
08
People with a spouse who is not in
paid employment
• Cover medical expenses that could arise if your
spouse suffers a critical illness, dies or becomes
totally and permanently disabled
• Pay for additional expenses such as childcare,
nursing or housekeeping
10
People who would like, in the event of their death, to:
• pass an asset that represents a significant portion
of their wealth to a specific beneficiary, and
• ensure their other beneficiaries are also provided
for fairly.
12
• Provide additional funds to equalise your estate
• Ensure all your beneficiaries receive sufficient assets
to achieve your estate planning objectives
People who are approaching retirement and have
adult children
• Ensure your grandchildren are looked after if
your children die, become disabled or suffer a
critical illness
• Protect your retirement savings
14
People who:
• are eligible to make salary sacrifice contributions
• are eligible to receive co‑contributions
• have a low income spouse, or
• are self-employed.
• Reduce the cost of insurance premiums
• Enable certain beneficiaries to receive the death or
TPD benefit as a tax-effective income stream
16
People considering insurance
• Pay a lower average premium
• Make your cover more affordable when older
18
1
Protect your greatest
asset – your income
2
Eliminate debt on
death, disability
or illness
3
Maintain your family’s
living standard
4
Protect the
homemaker
5
Treat your
beneficiaries
equitably
6
Protect your
retirement plans
7
Purchase Life and
TPD insurance
tax‑effectively
8
Reduce the long-term
cost of your insurance
Page 03
Strategy 1
Protect your greatest
asset – your income
What are the benefits?
If you’re employed
or self-employed,
you should
consider Income
Protection
insurance.
Most Income Protection policies offer
a range of waiting periods before you
start receiving your insurance benefit
(with options normally between 14 days
and two years).
By using this strategy, you could:
• receive up to 75% of your pre-tax
income if you are unable to work
due to illness or injury, and
• meet your living expenses while
you recover.
You can also choose from a range of
benefit payment periods, with maximum
cover generally available up to age 65.
How does the
strategy work?
A financial adviser can help you
determine whether you need Income
Protection insurance. They can also
review your insurance needs over time to
make sure you remain suitably covered.
Many people insure their home and
contents, even their life. Yet, all too often,
they don’t adequately protect what is
potentially their greatest asset – their
ability to earn an income.
What is your future
earning capacity?
Think about it this way. If you are unable
to work for an extended period due to
illness or injury, how will you meet your
mortgage repayments and other bills
and expenses? Without an income,
you could run down your savings very
quickly and face financial difficulty.
If you’re in any doubt about the
importance of protecting your income,
the table below shows how much you
could earn by the time you reach age 65.
For example, if you are currently 35 and
earn $80,000 pa, you could earn around
$3.8 million before you turn 65. Isn’t that
worth protecting?
Rather than putting your family’s lifestyle
at risk, by taking out Income Protection
insurance, you could receive a monthly
benefit of up to 75% of your income
to replace your lost earnings while
you recover.
To estimate your future earnings
capacity, a calculator can be accessed
at mlc.com.au
How much will you earn by age 65?
Current income (pa)
Age now
25
35
45
55
$40,000
$3,020,000
$1,900,000
$1,070,000
$460,000
$60,000
$4,520,000
$2,850,000
$1,610,000
$690,000
$80,000
$6,030,000
$3,810,000
$2,150,000
$920,000
$100,000
$7,540,000
$4,760,000
$2,690,000
$1,150,000
Assumptions: Income increases by 3% pa. No employment breaks. Figures rounded to nearest $10,000.
Page 04
Tips and traps
Case study
Leanne works full-time and earns a salary of $90,000 pa. She owns a home
worth $500,000 and has a mortgage of $350,000. If she’s unable to work due to
illness or injury, she wants to be able to meet her living expenses and mortgage
repayments without having to eat into her limited savings.
After assessing her goals and financial situation, her financial adviser recommends
she take out Income Protection insurance to cover 75% of her monthly income.
Shortly after taking out the insurance, Leanne is involved in a bad car accident and is
unable to work for six months.
Because Leanne had Income Protection insurance, she receives the full benefit of
$5,625 per month for five months after her initial one month waiting period (where
she’s covered by sick leave from her employer). As a result, Leanne receives a total
income of $35,625 during the six months she’s off work – consisting of a combination
of sick leave and Income Protection benefits.
If Leanne had not taken out Income Protection insurance, she would only have
received a sick leave payment of $7,500 and would have struggled to meet her living
expenses, mortgage repayments and out-of-pocket medical costs.
Note: This case study highlights the importance of speaking to a financial adviser about protecting
your income in the event of illness or injury. A financial adviser can also address a range of potential
issues and identify other suitable protection strategies – see Tips and traps.
Income (%)
100%
75%
50%
Sick
leave
$7,500
25%
1
Full Income
Protection
benefit
Full Income
Protection
benefit
$5,625
Full Income
Protection
benefit
$5,625
2
3
4
Month
$5,625
Full Income
Protection
benefit
$5,625
5
Full Income
Protection
benefit
$5,625
6
• When choosing a waiting period
for your Income Protection
insurance, it’s important to take
into account any sick leave and
related benefits provided by
your employer.
• Income Protection insurance
premiums will generally be lower
if you choose a longer waiting
period and a shorter benefit
payment period.
• It may be more cost-effective over
the longer term if you pay level
premiums, rather than stepped
premiums that increase each year
with age (see Strategy 8).
• If you take out Income Protection
insurance in a super fund, you can
arrange to have the premiums
deducted from your investment
balance without making additional
contributions to cover the cost.
This can help you afford insurance
if you don’t have sufficient cashflow
to pay for it outside super.
• If you are the primary income
earner, you should also consider
insurances that can provide a
payment to clear your debts
in a range of circumstances
(see Strategy 2) and enable your
family to meet their ongoing
living expenses if you pass away
(see Strategy 3).
• If your partner is not working,
they should consider insurances
that can provide a payment to
cover medical, childcare and
housekeeping expenses, if
they become critically ill or die
(see Strategy 4).
Page 05
Strategy 2
Eliminate debt on
death, disability
or illness
What are the benefits?
If you have a
home loan (or
other personal
debts), you should
consider Life, Total
and Permanent
Disability (TPD)
and Critical Illness
insurance.
By using this strategy, you could:
• provide a lump sum payment to clear
your debts, and
• pass on the full value of your assets
to your dependants if you pass away.
How does the
strategy work?
If you’re like most people, you’ve used
debt to fund a range of purchases,
including your family home.
However, if you die, become totally and
permanently disabled or suffer a critical
illness (such as cancer, a heart attack
or a stroke), the loan repayments will
still need to be made, even though the
salary your family has relied upon is
temporarily or permanently unavailable.
In the event of your death, your lender
may even require the outstanding
loan to be repaid immediately, and
sometimes the only way to do this is to
sell the family home.
Page 06
To avoid these potential problems, you
should consider Life, TPD and Critical
Illness insurance. These insurances can
provide a lump sum payment that could
be used to clear your debts.
When determining how much cover you
may need, you should:
• add up all the debts that would need
to be repaid (including your mortgage,
personal loans, credit cards and hire
purchase arrangements), and
• deduct any existing insurance
and other financial resources that
could be accessed (such as your
superannuation balance).
To find out the types and amounts of
cover you may need to clear your debts,
you should speak to a financial adviser.
A financial adviser can also review your
insurance needs over time to make sure
you remain suitably covered.
Case study
Tips and traps
Vanessa and Peter have three young children. Vanessa has been a full-time
homemaker for the past five years and Peter earns a salary of $95,000 pa. Their home
is valued at $500,000, they have debts totalling $320,000 and the repayments are
$2,797 per month.
Debts
Amount
owing
Interest rate
Current repayments
(per month)
Home loan (20 year term)
$295,000
7%
$2,287
Personal loan (5 year term)
$20,000
12%
$445
Credit cards
$5,000
17%
$65
Total
$320,000
$2,797
Peter is concerned that, if something happened to him, Vanessa would struggle to
meet the loan repayments and may even need to sell the family home to clear their
debts. So they decide to see a financial adviser to discuss their insurance needs.
After finding out more about their financial situation, their adviser points out that if
Peter becomes totally and permanently disabled or (dies), he (or Vanessa) could
receive a lump sum payment from his super fund of $120,000. This includes his
existing account balance and an insurance benefit provided by his fund.
Their financial adviser then explains that while this money could be used to reduce
the debts to $200,000, Vanessa may still find it difficult to meet the repayments. This
is because, even though she could return to the workforce, she would probably have
to meet some additional costs from her salary, such as childcare and household help.
To ensure enough money becomes available to clear the debts, their financial adviser
recommends Peter take out $200,000 in Life and TPD insurance to supplement the
$120,000 that would be paid from his super fund.
Furthermore, because Peter won’t receive a super benefit if he becomes critically
ill and is able to return to work, their financial adviser recommends he use Critical
Illness insurance to cover their total debts of $320,000. This will enable Peter and
his family to focus on his recovery without the financial stress of having to meet
loan repayments.
Note: This case study highlights the importance of speaking to a financial adviser about making sure
you have enough insurance to clear your debts in different circumstances. A financial adviser can also
address a range of potential issues and identify other suitable protection strategies – see Tips and traps.
• Because changes in your personal
circumstances (eg taking on
additional debt) often necessitate
higher insurance levels, it’s
important to select a policy that lets
you increase the level of cover in the
future, within certain limits, without
requiring further medical evidence.
• If you are the primary income
earner, you should also consider
insurances that can enable your
family to meet their ongoing living
expenses in the event of your
illness or injury (see Strategy 1) and
your death (see Strategy 3).
• If your partner is not working,
they should consider insurances
that can provide a payment to
cover medical, childcare and
housekeeping expenses if
they become critically ill or die
(see Strategy 4).
• There may be some advantages
in taking out the Life and TPD
insurance in a super fund
(see Strategy 7).
• It may be more cost-effective over
the longer term if you pay level
premiums, rather than stepped
premiums that increase each year
with age (see Strategy 8).
• To ensure your wishes are carried
out upon your death, you should
consider your entire estate
planning position, including which
assets will (and won’t) be dealt with
by your Will. The best way to do
this is to seek professional estate
planning advice.
Page 07
Strategy 3
Maintain your
family’s living
standard
What are the benefits?
If you have a
financially
dependent family,
you should ensure
you have enough
Life insurance.
By using this strategy, you could:
• provide your family with an ongoing
income, and
• enable them to meet their living
expenses if you pass away.
How does the
strategy work?
In the previous strategy, we explained
why you should consider using
insurance to clear your debts if you
die, become totally and permanently
disabled or suffer a critical illness.
However, it’s also important you have
enough Life insurance to enable your
family to meet their ongoing living
expenses in the event of your death.
As a starting point, you need to:
• work out what your family spends
each year on groceries, education,
household bills and other living
expenses, and
• decide how long you’d like your
family to be financially supported in
your absence.
Page 08
Once you know these two things, a
financial adviser can calculate how
much Life cover you will need to provide
the required income over the desired
time period.
When doing this, a financial adviser
can take into account the tax that may
be payable on the investment income
your family will receive and allow for the
impact of inflation.
With the right insurance advice, your
family can receive enough after-tax
income to meet their ongoing living
expenses and avoid financial difficulty.
A financial adviser can also review your
insurance needs over time to make sure
you remain suitably covered.
Case study
Tips and traps
Peter, from Strategy 2, also wants to make sure his wife (Vanessa) and three
young children will be able to maintain their living standard if he dies.
Peter works out his family currently needs around $34,000 pa (or $650 per week)
to meet their regular bills and expenses, excluding loan repayments.
Commitments
Amount
Frequency
Annual
amount
Groceries
$1,000
Monthly
$12,000
Education fund (for three children)
$300
Monthly
$3,600
Household expenses (eg electricity, $2,650
gas, phone, insurance and petrol)
Quarterly
$10,600
Other living expenses
(eg clothing and entertainment)
Weekly
$7,800
Total
$150
$34,000
Peter would also like to ensure his family has enough money to meet these financial
commitments for the next 18 years, until their youngest child reaches 21.
After assessing their goals and financial situation, their adviser recommends Peter
take out an extra $460,000 in Life cover. This is in addition to the Life, TPD and Critical
Illness cover he needs to clear their debts – see Strategy 2.
Should he die, the additional lump sum payment of $460,000 can be invested to
generate an after-tax income of $34,000 pa over the 18 year period1.
Note: This case study highlights the importance of speaking to a financial adviser to make sure you have
enough Life insurance so your family can meet their ongoing living expenses if you pass away. A financial
adviser can also address a range of potential issues and identify other suitable protection strategies – see
Tips and traps.
• When determining the amount of
Life insurance you require, it’s also
important to take into account any
funeral and estate costs that may
need to be met when you die.
• You may want to decrease the
amount of Life cover over time as
the period over which you need to
provide income support for your
family declines.
• If you are the primary income
earner, you should also consider
insurances that can enable your
family to meet their ongoing living
expenses in the event of your
illness or injury (see Strategy 1).
• If your partner is not working,
they should consider insurances
that can provide a payment to
cover medical, childcare and
housekeeping expenses if
they become critically ill or die
(see Strategy 4).
• There may be some advantages
in taking out the Life insurance in
a super fund (see Strategy 7).
• It may be more cost-effective over
the longer term if you pay level
premiums, rather than stepped
premiums that increase each year
with age (see Strategy 8).
1 Assumes the lump sum of $460,000 earns an after-tax return of 6% pa, the income required increases
at 3% pa to keep pace with the rising cost of living and the capital is exhausted over the 18 year period.
Page 09
Strategy 4
Protect the
homemaker
What are the benefits?
If your spouse
is predominantly
the homemaker
and child carer,
they should also
ensure they have
sufficient insurance.
By using this strategy, you could:
• cover medical expenses that could
arise if your spouse suffers a critical
illness, dies or becomes totally and
permanently disabled, and
• pay for additional expenses, such as
childcare, nursing or housekeeping.
How does the
strategy work?
In the previous strategies, we outlined
the financial risks a family faces if the
primary income earner doesn’t have
enough insurance.
However, it’s also potentially dangerous
to overlook the insurance needs of
the person who is mainly responsible
for looking after the home and raising
the children.
If something should happen to the
homemaker, the primary income earner
usually has a limited number of options.
They can reduce their working hours to
look after the household and children,
or they can hire someone else to do it.
But both options can have a
negative impact on the household’s
disposable income.
1 Based on MLC’s claims experience.
Page 10
A simple way to avoid putting a big dent
in the household budget is to get the
homemaker to take out insurances that
can provide a lump sum payment if they
suffer a critical illness, die or become
totally and permanently disabled.
When deciding which of these
insurances to buy, Critical Illness
cover is potentially the most important.
This is because:
• Australian males and females between
age 25 and 40 are, for example, three
and five times more likely to become
critically ill than die1, and
• you need to be employed or
self‑employed if you want to take
out Income Protection insurance
(see Strategy 1).
However, you should also consider
Life and TPD insurance. This is because
the death or total and permanent
disability of the homemaker could
have a devastating financial (as well as
emotional) impact on the family.
A financial adviser can help you
determine how much cover the
homemaker will need and in what
circumstances. They can also review
your insurance needs over time to
make sure you and your spouse remain
suitably covered.
Case study
Tips and traps
Nicholas is married to Rebecca, who is taking time out of the workforce to look
after their twin three-year-old boys.
Nicholas is employed, earns a pre-tax salary of $100,000 pa (or $73,050 pa
after tax) and has already arranged a comprehensive package of insurances for
himself. However, they hadn’t recognised the importance of insuring Rebecca
and the financial impact of this oversight hit home when she was diagnosed with
breast cancer.
During the three years it took Rebecca to make a full recovery, they spent a total
of $92,400 on childcare and help around the home, as outlined below.
Total
Amount
Commitments
Amount (pa)
Number of years
Full-time childcare
$33,600
($70 per work day over
48 weeks for two children)
2
(until they start school)
$67,200
After school care
$6,000
($75 per week over
40 weeks for two children)
1
$6,000
School holiday care
$4,800
($300 per week over eight
weeks for two children)
1
$4,800
Housekeeping
(part-time cooking
and cleaning)
$4,800
($100 per week for
48 weeks)
3
$14,400
Total
$92,400
Also, things were particularly tough in the first two years, where these costs amounted
to $38,400 pa. This represents a little over 50% of Nicholas’s take-home pay, leaving
him with little money to pay the mortgage and meet their day-to-day living expenses.
However, the financial impact of Rebecca’s critical illness could have been reduced
(or eliminated) if, after speaking to a financial adviser, she had taken out Critical Illness
insurance to cover these and other costs.
• There may be some advantages
in taking out the Life and TPD
insurance for the homemaker
in a super fund (see Strategy 7).
For example, the contributions
to the super fund to pay for the
insurance premiums could qualify
for a Government co-contribution
(up to $1,000 in 2009/10) or a
spouse tax offset (up to $540 pa)
– see Glossary.
• If the cover is taken through
superannuation, it may be
possible to make a binding
nomination to ensure any death
benefit is payable to a particular
dependant (eg the working
partner). TPD benefits in super
are always payable to the
disabled member.
• If taken outside superannuation,
the homemaker’s Life and TPD
insurance could be owned by
the working partner, ensuring
complete control over the
benefits received.
• Insuring the primary income
earner and the homemaker
under the one policy may save
on policy fees.
• It may be more cost-effective over
the longer term if you opt for level
premiums, rather than stepped
premiums that increase each year
with age (see Strategy 8).
Note: This case study highlights the importance of speaking to a financial adviser to make sure your
spouse has enough insurance to cover medical, childcare and housekeeping expenses if something
should happen to them. A financial adviser can also address a range of potential issues and identify
other suitable protection strategies – see Tips and traps.
Page 11
Strategy 5
Treat your
beneficiaries
equitably
What are the benefits?
If you’d like to
pass an asset
that represents a
significant portion
of your wealth
to a particular
beneficiary, Life
insurance can be
used to ensure your
other beneficiaries
are treated fairly.
By using this strategy, you could:
• provide additional funds to equalise
your estate in the event of your
death, and
• ensure all your beneficiaries receive
sufficient assets to achieve your
estate planning objectives.
How does the
strategy work?
When planning the distribution of
your wealth, you may want to pass an
asset of significant value to a particular
beneficiary. This could occur if you
would like to leave, for example, an
investment property or the family home
to one of your children.
But what if this asset represents a large
portion of your total wealth and you are
unable to ensure your other children
benefit equally?
Page 12
One solution is to take out a suitable
amount of Life insurance. In the event
of your death:
• the asset of significant value could be
passed on to one of your children, and
• the proceeds from the life insurance
policy could be added to your other
assets to ensure all your children
receive the same amount.
This can enable you to equalise your
estate and treat your children (or other
beneficiaries) fairly.
A financial adviser can help you
determine how much Life insurance
you may require and can review your
insurance needs over time to make sure
you remain suitably covered.
Because the law can vary in each state,
you should also seek professional legal
advice before using this strategy.
Case study
Tips and traps
Lucinda is a widow and has three adult children – Harry, Kate and Angus – who she
would like to share equally in her wealth in the event of her death.
She has $800,000 in assets, consisting of the family home worth $400,000 and
$400,000 in shares and superannuation.
While Harry and Kate have already bought their homes, Angus is still renting.
So, Lucinda would like Angus to receive the family home if she passes away.
The problem she faces is that her children will not benefit equally if the property goes
to Angus and the other assets are split between Harry and Kate. This is because
Angus will receive an asset worth $400,000, while her other children will receive
$200,000 each.
Distribution of wealth – before seeking advice
Asset
Harry
Kate
Angus
Family home
Nil
Nil
$400,000
Shares and superannuation
$200,000
$200,000
Nil
Total amount received
$200,000
$200,000
$400,000
To ensure she can achieve her estate planning objectives, Lucinda decides to speak
to a financial adviser.
After assessing her goals and financial situation, her adviser recommends she take
out $400,000 in Life insurance and make arrangements so that this additional money
will be paid to Harry and Kate in the event of her death.
By using this strategy, Lucinda makes sure that Angus will receive the family home
and all three children will receive assets of equivalent value.
Distribution of wealth – after seeking advice
Asset
Harry
Kate
Angus
Family home
Nil
Nil
$400,000
Shares and superannuation
$200,000
$200,000
Nil
Life insurance benefit
$200,000
$200,000
Nil
Total amount received
$400,000
$400,000
$400,000
• There are a number of ways
to ensure the Life insurance
proceeds are received by
your intended beneficiaries.
Some of these include having
the intended beneficiary as the
policy owner, nominating them
as a beneficiary of the policy or
distributing the money via your
Will. Each alternative may have
different implications which you
should consider before choosing
a particular option.
• To treat all beneficiaries fairly,
you should take into account
any taxes (eg Capital Gains Tax)
that may be payable if and when
certain assets are sold after your
death. You should also update
your insurance cover to reflect the
changing value of your assets.
Failing to do this may lead to one
or more beneficiaries receiving
more (or less) than you intended.
• To ensure your wishes are carried
out upon your death, you should
consider your entire estate
planning position, including which
assets will (and won’t) be dealt with
by your Will. The best way to do
this is to seek professional estate
planning advice.
• There may be some advantages
in taking out the Life insurance in
a super fund (see Strategy 7).
• It may be more cost-effective over
the longer term if you pay level
premiums, rather than stepped
premiums that increase each year
with age (see Strategy 8).
Note: This case study highlights the importance of speaking to a financial adviser about using Life
insurance to equalise your estate. A financial adviser can also address a range of potential issues and
identify other suitable protection strategies – see Tips and traps.
Page 13
Strategy 6
Protect your
retirement plans
What are the benefits?
If you’re
approaching
retirement, you
should ensure
your children have
sufficient insurance.
By using this strategy, you can:
• ensure your grandchildren receive
the financial support they will need if
your children die, become disabled
or suffer a critical illness, and
• protect your retirement plans.
How does the
strategy work?
As you approach retirement, you have
many wonderful things to look forward
to. However, life doesn’t always work out
as you planned.
Imagine what would happen if your son
or daughter died, became disabled or
suffered a critical illness and they didn’t
have adequate insurance.
1 ABS: Family Characteristics, Australia, 2003.
Page 14
Probably the last thing you’d expect to
cope with would be taking on a parental
role again, but for around 22,5001
Australians this is something they’re
already experiencing.
To minimise the impact this could have on
your financial position, you should find out
whether your children have implemented
suitable protection strategies.
If not (and they are not in a financial
position to do so) you may want to pay
for additional Life, Total and Permanent
Disability and Critical Illness insurance
on their behalf.
Your financial adviser can help you
protect the ones you love, as well as
help you achieve your retirement goals.
They can also review your family’s
insurance needs over time to make sure
they remain suitably covered.
Case study
Harry and Judy retired last year. After many years of hard work and planning, they
had built up a sizeable nest egg and had many things to look forward to, including an
extended trip around Australia.
But just as they were settling into this new stage in their lives, the unthinkable
happened. Their eldest son, Simon, had a brain haemorrhage and passed away.
To make matters worse, because he was young, Simon hadn’t seen the need
for Life insurance and left his wife Nicole and three children without any means of
financial support.
Like many caring grandparents would do, Harry and Judy decided to take Nicole and
the kids into their home. But they quickly found this had a devastating impact on their
financial situation.
Importantly, they were left in a position where they were unable to afford the lifestyle
they’d anticipated and had to cancel their travel plans.
This situation could have been avoided if they’d talked to a financial adviser about
insuring Simon. Had they done this, Nicole could have received a lump sum payment
to meet her (and the kids’) ongoing expenses and not become a financial burden for
Harry and Judy.
Note: This case study highlights the importance of speaking to a financial adviser about your children’s
insurance needs. A financial adviser can also address a range of potential issues and identify other
suitable protection strategies – see Tips and traps.
Tips and traps
• When deciding how much
insurance your adult children may
need, they should consider how
much money would be required to:
–clear their debts (see Strategy 2)
–provide an ongoing income
to meet living expenses
(see Strategy 3), and
–cover a range of medical,
childcare and housekeeping
costs (see Strategy 4).
• If you pay for insurance taken
out on the life of your children,
you may want to own the policy.
This will ensure you have complete
control over any proceeds paid
in the event of their death, total
and permanent disability or
critical illness.
• It may be more tax-effective if your
adult children take out the Life and
TPD insurance in a super fund
(see Strategy 7).
• It may be more cost-effective
over the longer term if the
policy owner elects to pay level
rather than stepped premiums
(see Strategy 8).
Page 15
Strategy 7
Purchase Life
and TPD insurance
tax-effectively
What are the benefits?
If you want to
protect yourself
and your family
tax-effectively, you
may want to take
out life and total
and permanent
disability (TPD)
insurance in a
super fund rather
than outside super.
By using this strategy, you could:
• reduce the premium costs, and
• enable certain beneficiaries to
receive the death or TPD benefit
as a tax‑effective income stream.
How does the
strategy work?
If you buy life and TPD insurances in
a super fund, you may be able to take
advantage of a range of upfront tax
concessions generally not available when
insuring outside super. For example:
• If you’re eligible to make salary
sacrifice contributions, you may be
able to purchase insurance through
a super fund with pre-tax dollars
(see case study).
• If you earn less than $61,9201 pa
and you make personal after-tax
super contributions, you may be
eligible to receive a Government
co‑contribution2 (see Glossary)
that could help you cover the cost
of future insurance premiums.
• If you make super contributions
on behalf of a low-income spouse,
you may be able to claim a tax offset
of up to $540 pa (see Glossary) that
could be put towards insurance
premiums for you or your spouse.
• If you earn less than 10% of your
income3 from eligible employment
(eg you’re self‑employed or not
employed), you can generally claim
your super contributions as a tax
deduction – regardless of whether
they are used in the fund to purchase
investments or insurance.
Page 16
These tax concessions can make it
cheaper to insure through a super fund.
This will usually also be the case if the
sum insured is increased to make a
provision for any lump sum tax that is
payable on TPD and death benefits in
certain circumstances (see FAQs on
pages 22 and 23).
Another benefit of insuring in super is
that you (or certain eligible dependants)
have the option to receive the TPD
(or death) benefit as an income stream,
rather than a lump sum payment.
Where this is done:
• because lump sum tax won’t be
payable when the income stream
is commenced, there is no need to
increase the sum insured, and
• the income payments will be
concessionally taxed (see FAQs
on pages 22 and 23).
However, receiving the insurance
proceeds as an income stream will
generally not be suitable if the money is
required as a lump sum to clear debts
(see Strategy 2) or meet any other
one‑off financial commitments.
A financial adviser can help you
determine whether you could benefit
from insuring in super. They can
also review your insurance needs
over time to make sure you remain
suitably covered.
1 Includes assessable income, reportable fringe benefits and reportable employer super
contributions (of which at least 10% must be from eligible employment or carrying on a business).
Other conditions apply.
2 Some funds or superannuation interests may not be able to receive Government co-contributions.
This includes unfunded public sector schemes, defined benefit interests, traditional policies
(such as endowment or whole of life) and insurance only superannuation interests.
3 Includes assessable income, reportable fringe benefits and reportable employer super contributions.
Other conditions apply.
Case study
Tips and traps
Jack, aged 45, is married to Claire, aged 41. Claire is taking a break from
the workforce while she looks after their young children. Jack works full-time, earns a
salary of $100,000 pa and they have a mortgage. He wonders whether Claire would
cope financially if anything happened to him. So they speak to a financial adviser to
see if he has enough insurance.
After assessing their goals and financial situation, their adviser recommends Jack
take out $700,000 in Life insurance so Claire can pay off their debts (see Strategy 2)
and replace his income (see Strategy 3) if he dies. The premium for this insurance is
$827 in year one.
Their adviser also explains that it will be more cost-effective if he takes out the insurance
in super. This is because if he arranges with his employer to sacrifice $827 of his salary
into his super fund, he’ll be able to pay the premiums with pre‑tax dollars4.
Conversely, if he purchases the cover outside super:
• he’ll need to pay the premium of $827 from his after-tax salary, and
• after taking into account his marginal rate of 39.5%5, the pre-tax cost would be
$1,367 (ie $1,367 less tax at 39.5% [$540] equals $827).
By insuring in super he could make a pre-tax saving of $540 on the first year’s premium
and an after-tax saving of $327, after taking into account his marginal rate of 39.5%.
Insurance purchased
outside super (with
after-tax salary)
Insurance purchased
within super (via
salary sacrifice)
Premium
$827
$827
Plus tax at marginal rate of 39.5%5
$540
N/A
Pre-tax salary received or sacrificed $1,367
$827
Pre-tax saving
N/A
$540
After-tax saving
N/A
$327
Let’s now assume he maintains this cover for 20 years. Over this period, the after-tax
savings could amount to $18,891 (in today’s dollars). So insuring in super could be
significantly cheaper over a long time period.
Insurance assumptions: Age 45, non-smoker. Based on MLC Limited’s standard premium rates as at
1 December 2009.
• Insurance cover purchased
through a super fund is owned
by the fund Trustee, who is
responsible for paying benefits
subject to relevant legislation and
the fund rules (see ‘Restrictions
on non-death benefits’ in the
Glossary). When insuring in super,
you should be clear on the powers
and obligations of the relevant
Trustee when paying benefits.
• When making contributions to
fund insurance premiums in a
super fund, you should take into
account the cap on concessional
and non-concessional
contributions (see Glossary).
• When insuring in super, you
can usually arrange to have the
premiums deducted from your
account balance without making
additional contributions to cover
the cost. This can enable you to
get the cover you need without
reducing your cashflow.
• While Critical Illness insurance
is generally not available within
super, it is possible to purchase
Income Protection (or Salary
Continuance) insurance in super
with a choice of benefit payment
periods up to age 65. To find out
more about the tax implications,
see FAQs on page 25.
• It may be more cost-effective over
the longer term if you pay level
premiums, rather than stepped
premiums that increase each year
with age (see Strategy 8).
Note: This case study highlights the importance of speaking to a financial adviser about the benefits
of taking out insurance in a super fund. A financial adviser can also address a range of potential issues
and identify other suitable protection strategies – see Tips and traps.
4 Because super funds generally receive a tax deduction for death and disability premiums, no
contributions tax is deducted from the salary sacrifice super contributions.
5 Includes a Medicare levy of 1.5%.
Page 17
Strategy 8
Reduce the
long‑term
cost of your
insurance
What are the benefits?
When taking out
insurance to protect
you or your family,
you should consider
paying level rather
than stepped
premiums.
By using this strategy, you could:
• pay a lower average premium over the
life of the policy, and
• make your cover more affordable at a
time when you need it most.
How does the
strategy work?
When you take out insurance within or
outside super, there are generally two
ways you can pay your premiums.
You can opt for a stepped premium
that is calculated each year in line with
your age.
Or you can choose a level premium that
is calculated each year based on your
age when the cover commenced.
Level premiums are usually higher than
stepped premiums at the start (as the
graph below reveals).
The premium savings in the later years
can also make up for the additional
payments in the earlier years, saving
you money over the life of the policy.
The case study on the opposite page
provides an example of the long-term
savings that choosing level premiums
could provide.
To find out whether you could benefit
from paying level premiums, you should
seek financial advice.
A financial adviser can also help you
determine the types and amounts of
insurance you require and can review
your needs over time to make sure you
remain suitably covered.
Note: Choosing a level premium does not mean
your premiums are guaranteed or will not change
in the future. Level premium rates may increase
due to rate increases, CPI increases and
policy fee increases. However, unlike stepped
premiums, level premiums (excluding CPI and the
policy fee) don’t go up by age-related increases.
However, over time, as stepped
premiums increase, level premiums can
end up cheaper – often at the stage in
life when you need the cover most.
Cost
Level versus stepped premiums
Stepped
Level
Age
Page 18
Case study
Tips and traps
Jack and Claire (from Strategy 7) have spoken to a financial adviser about their
insurance needs.
After assessing their goals and financial situation, their adviser has recommended
Jack take out $700,000 of Life insurance in his super fund, where he could make an
after‑tax saving of $327 on the first year’s premium and $18,891 over a 20 year period.
Their adviser also explains it will be even more cost-effective over the longer term if
Jack pays level rather than stepped premiums.
This is because, over a 20 year period, he’ll pay level premiums of $1,685 pa for a total
cost of $33,700. Alternatively, if he chooses stepped premiums, he’ll pay between
$827 and $9,484 pa for a total outlay of $71,216.
In other words, choosing level premiums could save Jack a total of $37,516 over the
next 20 years (or $22,558 in today’s dollars1). This is in addition to the savings he
could make by holding the insurance in super.
However, if Jack only needed insurance for a shorter time period (eg five years), it may
be more cost-effective if he opts for stepped rather than level premiums.
Total premiums over 20 years
Saving (in today’s dollars)1
Level
premiums
Stepped
premiums
Difference
$33,700
$71,216
$37,516
$22,558
Insurance assumptions: Age 45, non-smoker. Based on MLC Limited’s standard premium rates as at
1 December 2009.
Note: This case study highlights the importance of speaking to a financial adviser about the best
premium payment option when taking out insurance. A financial adviser can also address a range of
potential issues and identify other suitable protection strategies – see Tips and traps.
• You may want to take out part
of your insurance using stepped
premiums and use level premiums
for the rest. This way, the premium
in the earlier years will be lower
than if you opt entirely for level
premiums. Over time, you can then
reduce your stepped premium
cover as you build up more
assets and potentially need less
insurance. As a result, you could
end up paying level premiums on
most (if not all) of your insurance in
the later years, and benefit from the
lower premium costs associated
with level premiums at that time.
• The earlier you lock in the level
premium, the greater the potential
long-term savings. This is because
level premiums are based on your
age when the policy commences
and are generally lower if you take
out the cover at a younger age.
However, as you approach age 65,
the difference between the two
premium structures diminishes for
new policies.
• Level premiums can make
budgeting easier, because you
have a greater degree of certainty
regarding what your insurance is
going to cost when compared to
stepped premiums.
• The maximum age you can start
a policy with level premiums
is generally lower than for
stepped premiums.
1 Assumes an inflation rate of 3% pa.
Page 19
One Minute
Insurance
Check
Complete the One Minute Insurance Check
below to assess your personal insurance needs.
Would your current insurance, including
those within super funds, be enough
to pay off your debts (eg mortgage, car
loan, credit card) and keep your family
comfortable for the rest of their lives?
Are you aware that choosing to pay
level rather than stepped premiums
could reduce the cost of insurance over
the long term?
Yes
Yes
No
No
Unsure
Unsure
If something unexpected happened
to your partner, could you afford a
housekeeper or nanny to look after
any children?
Yes
No
Unsure
N/A
If you were unable to work for three
months, or longer, because of an
accident or illness, could you meet your
lifestyle expenses (eg loan repayments,
rent, food, education, clothing,
entertainment) without a regular income?
Yes
No
Unsure
Are you aware it can be more
tax-effective to buy insurance in
a super fund?
Yes
No
Unsure
Page 20
Want some help?
If you answered no or unsure to any of
these questions, it could be time you
considered talking to an expert about
protecting you and your family.
If you do not have an adviser,
contact MLC on 132 652 or
go to mlc.com.au
Keep your
insurance
going in
tough times
During tough
economic times,
you may look for
ways to cut your
expenses.
However, when
reviewing your
budget, insurance
should be one of
the last items
examined.
If the unthinkable were to happen and
you didn’t have adequate insurance, the
financial impact on you and your family
could be quite dramatic.
Regardless of whether you’re feeling
the squeeze right now or looking for
ways to reduce your expenses, there
are a number of ways many of us can
make personal insurance cover more
affordable.
Buy your
insurance in super
Consolidate
your insurances
If you buy your insurance through
a super fund, you may be able to
take advantage of a range of upfront
tax concessions generally not
available when insuring outside super
(see Strategy 7).
Holding all your personal insurances
in the one policy could enable you to
save on fees. Fee savings could also be
made by consolidating the insurances
held by yourself, your spouse and other
family members (in some cases) into the
one policy.
Alternatively, you could arrange to
have your premiums deducted from
your existing superannuation account
balance without making additional
contributions to cover the cost.
This can make your insurance affordable
if you don’t have sufficient cashflow
to fund the premiums. This option
could be particularly attractive if you
are temporarily out of the workforce
(eg due to a redundancy).
Pay level premiums
If you elect to pay level rather than
stepped premiums, you could reduce
the long-term cost of your insurance
considerably (see Strategy 8). This is
because, over time, level premiums can
end up cheaper, often at a stage in life
when you need the cover the most.
Pay your
premiums annually
In some cases, you may be eligible for
a discount if you pay your premiums
annually, rather than monthly.
Choose a longer waiting
period and shorter benefit
payment period for
Income Protection
Most Income Protection insurance
policies enable you to choose how
long you will need to wait before
the insurance benefit will start to be
paid and how long it will be paid for.
Choosing a longer waiting period
and a shorter benefit payment period
can reduce your premiums, in some
cases significantly.
Reduce the sum insured
As a last resort, you could consider
insuring yourself for a lower amount.
If something were to happen to you, this
would clearly be a better option than
cancelling your insurance completely.
But you also need to keep in mind that
reducing the sum insured could leave
you (or your family) without sufficient
money to meet your financial goals
should the unthinkable happen.
To find out how you could make
your premiums more affordable,
we recommend you speak to a
financial adviser.
Page 21
Frequently
Asked
Questions
In this section, we summarise the taxation treatment of different types of insurance. The tax implications can vary, depending
on the reason the insurance is purchased and the person (or the entity) that owns the policy.
Note: This taxation information is based on MLC’s understanding of current legislation and Australian Taxation Office practice as at 1 January 2010.
Our comments are general only. The taxation treatment may vary according to your individual circumstances and may not apply in all cases. You should
therefore seek professional advice regarding your own taxation position.
What are the tax implications of Life insurance?
Scenario
Where an individual owns
the policy on their own life
and the premiums are paid
by the individual for personal
protection purposes
Where an individual owns the
policy on their own life and
the premiums are paid by the
individual’s employer
Where the Trustee of a
superannuation fund owns
a policy on the life of a
fund member
What upfront tax concessions
are available?
None
Are the benefits assessed
as income?
No
The employer can claim the premiums No
and related Fringe Benefits Tax (FBT)
liability2 as a tax deduction
The super fund Trustee can claim the
premiums as a tax deduction. At the
fund member level:
• Self-employed3 and other eligible
people can claim their personal
super contributions as a tax
deduction.
• Employees can arrange to make
pre‑tax (salary sacrifice) super
contributions.
• Certain members may be eligible
for Government co‑contributions
(see page 26).
Note: Super contributions will count
towards the member’s concessional
or non-concessional contribution cap
(see pages 26 and 27).
If paid as a lump sum:
No
• Dependants for tax purposes4 can
receive unlimited tax-free amounts.
• Non-dependants will pay tax as follows:
–– no tax is payable on the tax
free component
–– the taxed element of the taxable
component is taxed at 16.5%5
–– the untaxed element of the taxable
component is taxed at 31.5%5.
If paid as an income stream, the income
payments will be tax-free if the deceased
(or the recipient) is aged 60 or over.
Otherwise, the income payments less
any tax free component will be taxable at
the recipient’s marginal rate (less a 15%
pension tax offset) until they reach age 60.
Note: Only certain dependants are able to
receive a death benefit as an income stream.
These include a spouse, children under age 18,
financially dependent children aged between
18 and 25, other financial dependants
(excluding children), disabled children over
age 25 and people in an interdependency
relationship with the deceased fund member.
Page 22
Are the benefits
subject to Capital
Gains Tax?
No, unless the recipient
is not the original
beneficial owner and
acquired the policy for
consideration1
No (as above)
What are the tax implications of Total and Permanent Disability (TPD) insurance?
Scenario
What upfront tax
concessions are available?
Where an individual owns the policy None
on their own life and the premiums
are paid by the individual for
personal protection purposes
Where an individual owns the
policy on their own life and
the premiums are paid by the
individual’s employer
Where the Trustee of a
superannuation fund owns a
policy on the life of a fund member
Are the benefits assessed
as income?
No
The employer can claim the
No
premiums and related Fringe
Benefits Tax (FBT) liability2 as a
tax deduction
The super fund Trustee can
If paid as a lump sum:
generally claim the premiums
• No tax is payable on the tax
as a tax deduction. At the fund
free component.
member level:
•
The
taxable component is:
• Self-employed3 and other eligible
–– taxed at 21.5%5 if under age 55
people can claim their personal
–– taxed at 16.5%5 on amounts
super contributions as a tax
above $150,0007 if aged 55 to 59
deduction.
–– tax-free if aged 60 or over.
• Employees can arrange to make
pre-tax (salary sacrifice) super
If paid as an income stream, the
contributions.
income payments will be tax-free
• Certain members may be eligible if the disabled fund member is
for Government co-contributions aged 60 or over. Otherwise, the
income payments less any tax
(see page 26).
free component
will be taxable at the
Note: Super contributions will count
disabled member’s marginal rate
towards the member’s concessional
(less a 15% pension tax offset) until
or non-concessional contribution cap
they reach age 60.
(see pages 26 and 27).
Are the benefits
subject to Capital
Gains Tax?
No, so long as the person
receiving the insurance
benefit is the life insured
or a defined relative 6 of
the life insured
No (as above)
No
1 Consideration may be monetary or otherwise, but does not include premiums paid on the policy.
2 FBT of 46.5% is payable on 186.92% of the premiums.
3 To qualify as self-employed, you must earn less than 10% of your assessable income, reportable fringe benefits and reportable employer super
contributions from eligible employment.
4Includes a spouse (legally married or de facto including same sex), a former spouse, children under age 18, a financial dependant and a person in an
interdependency relationship with the deceased.
5 Includes a Medicare levy of 1.5%.
6A defined relative includes:
• a spouse (married or de facto), or
• a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, child (including adopted or step) or spouse of these people.
7This cap applies to the total of all taxable components (and post-June 1983 components prior to 1 July 2007) that are taken as cash at age 55 and over,
and is indexed periodically in increments of $5,000.
Page 23
Frequently
Asked
Questions
What are the tax implications of Critical Illness
insurance (when the benefit is paid as a lump sum)?
Are the benefits
subject to Capital
Gains Tax?
What upfront tax concessions
are available?
Are the benefits assessed
as income?
Where an individual owns
the policy on their own life
and the premiums are paid
by the individual for personal
protection purposes
None
No
No, so long as the
person receiving the
insurance benefit is
the life insured or a
defined relative8 of
the life insured
Where an individual owns the
policy on their own life and
the premiums are paid by the
individual’s employer
The employer can claim the premiums
and related Fringe Benefits Tax (FBT)
liability9 as a tax deduction
No
No (as above)
Scenario
8A defined relative includes:
• a spouse (married or de facto), or
• a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, child (including adopted or step) or spouse of these people.
9 FBT of 46.5% is payable on 186.92% of the premiums.
Page 24
What are the tax implications of Income Protection insurance?
Are the benefits
subject to Capital
Gains Tax?
What upfront tax concessions
are available?
Are the benefits assessed
as income?
Where an individual owns
the policy on their own life
and the premiums are paid
by the individual for personal
protection purposes
The individual can claim the premiums
as a tax deduction
Yes – the benefits are assessable to the
individual
No
Where an individual owns the
policy on their own life and
the premiums are paid by the
individual’s employer
The employer can claim the premiums
as a tax deduction10
Yes (as above)
No
Where the Trustee of a
superannuation fund owns
a policy on the life of a
fund member
The super fund Trustee can claim the
premiums as a tax deduction. At the
fund member level:
• Self-employed11 and other eligible
people can claim their personal
super contributions as a tax
deduction.
• Employees can arrange to make
pre-tax (salary sacrifice) super
contributions.
• Certain members may be eligible
for Government co-contributions
(see page 26).
Yes (as above)
No
Scenario
Note: Super contributions will count
towards the member’s concessional or
non-concessional contribution cap (see
pages 26 and 27).
10 Fringe Benefits Tax is not payable, as the premium is ‘otherwise deductible’ to the employee.
11 To qualify as self-employed, you must earn less than 10% of your assessable income, reportable fringe benefits and reportable employer super
contributions from eligible employment.
Page 25
Glossary
A
Account based pension – an account
in which you can invest your super
savings in exchange for a regular and
tax-effective income.
Assessable income – income
(including capital gains) you receive
before deductions.
C
Capital Gains Tax (CGT) – a tax
on the growth in the value of assets
payable when the gain is realised. If the
assets have been held for more than
one year, the capital gain may receive
concessional treatment.
The table below outlines the
co‑contribution you may be entitled to
receive if you make personal after-tax
super contributions in 2009/10.
Income1 Personal
Coafter-tax
contribution
contribution available
$31,920
or less
Any amount
$31,921 – $0 – $1,000
$61,919
Complying super fund – a super fund
that qualifies for concessional tax rates.
A complying super fund must meet the
requirements that are set down by law.
Co-contribution – a super contribution
of up to $1,000 from the Government in
2009/10. To qualify for a co‑contribution:
• Your income1 must be less than
$61,920 in 2009/10.
• At least 10% of your income1 must be
from eligible employment or carrying
on a business.
• You need to make personal after-tax
contributions to your super account.
Salary sacrifice contributions
don’t qualify.
• You need to lodge an income tax return.
• You must be under age 71 at the
end of the financial year the personal
after‑tax super contribution is made.
• You can’t be a temporary resident.
$31,921 – $1,000
$61,919 or more
$61,920
or more
Any amount
100% of your
personal
contribution
(subject to a
maximum of
$1,000)
An amount
equal to the
lesser of:
• personal
contribution,
or
• $1,000 –
[0.03333 x
(income1 –
$31,920)]
$1,000 –
[0.03333 x
(income1 –
$31,920)]
Nil
The Australian Taxation Office will
determine your entitlement based
on the data received from your super
fund (usually by 31 October each year
for the preceding financial year) and the
information contained in your tax return.
As a result, there can be a time lag
between when you make your personal
after-tax contribution and when the
Government pays the co-contribution.
Note: The maximum co-contribution will be
$1,000 (in 2009/10, 2010/11 and 2011/12),
$1,250 (in 2012/13 and 2013/14) and $1,500
(from 1 July 2014).
1 Includes assessable income, reportable fringe benefits and reportable employer super contributions.
2 The $1 million is reduced by all other transitional Employment Termination Payments received
between 1 July 2007 and 30 June 2012 (including those taken in cash).
3 This figure is indexed periodically.
Page 26
Concessional contribution cap –
a cap that applies to certain super
contributions. These include, but are
not limited to:
• contributions from an employer
(including salary sacrifice)
• personal contributions claimed as a
tax deduction (where eligible), and/or
• Employment Termination Payments
rolled over to super between 1 July
2007 and 30 June 2012 exceeding the
$1 million threshold amount2.
In 2009/10, the cap is $25,0003
or, if aged 50 or over, $50,000 pa
until 30 June 2012 and $25,0003 pa
thereafter. If the cap is exceeded, excess
contributions will be taxed at a penalty
rate of 31.5%.
Contributions tax – a tax of no more
than 15% that is payable on personal
deductible and employer contributions
(including salary sacrifice) made to a
super fund, less the cost of Life, TPD
and Income Protection insurance.
D
Dependant for tax purposes – those
people eligible to receive unlimited
tax‑free lump sum payments from a
super fund in the event of your death.
Includes a spouse (legally married or
de facto including same sex), a former
spouse, children under age 18, a
financial dependant and a person in
an interdependency relationship with
the deceased.
E
M
N
Eligible employment – broadly any
work that classifies you as an employee
for Superannuation Guarantee purposes.
Marginal tax rate – the stepped rate
of tax you pay on your taxable income.
The table below summarises the tax
rates that apply to residents in 2009/10.
Non-concessional contribution
cap – a cap that applies to certain
super contributions. These include,
but are not limited to, personal after‑tax
contributions made and spouse
contributions received. In 2009/10,
the cap is $150,0005. However, if you
are under age 65, it is possible to
contribute up to $450,000 in 2009/10,
provided your total non-concessional
contributions in that financial year, and
the following two financial years, do
not exceed $450,000. If the cap is
exceeded, excess contributions will be
taxed at a penalty rate of 46.5%.
Employment Termination Payment
(ETP) – a payment made by an
employer to an employee on termination
of employment. Examples can include
a redundancy payment exceeding the
tax‑free amount, accrued sick leave or
an ex gratia payment.
F
Fringe benefit – a benefit provided to
an employee by an employer in respect
of that employment. Super contributions
made by an employer to a complying
super fund are excluded from Fringe
Benefits Tax.
Fringe Benefits Tax (FBT) – a tax
payable by your employer on the
grossed up value of certain fringe
benefits that you receive as an employee.
The current rate of tax is 46.5%.
Taxable income Tax payable4
range
in 2009/10
$0 - $6,000
Nil
$6,001 - $35,000
15% on amount
over $6,000
$35,001 - $80,000
$4,350 + 30% on
amount over $35,000
$80,001 - $180,000 $17,850 + 38% on
amount over $80,000
Over $180,000
$55,850 + 45% on
amount over $180,000
Medicare levy – a levy of 1.5% that is
payable on the whole of your taxable
income on top of normal marginal tax
rates. If you earn less than $17,794 pa
($30,025 pa combined for couples) you
are exempt from the levy.
An additional 1% surcharge applies to
singles with an income over $73,000 pa
(or couples with a combined income of
$146,000 pa) who don’t have private
health insurance. If applicable, this
Medicare levy surcharge will be payable
on top of the base Medicare levy of 1.5%.
P
Pension offset – a tax offset of 15% on
the taxable income payments received
from an income stream investment
purchased with superannuation
money between the ages of 55 and 59.
The offset is also available before age 60
on death and disability benefits paid as
an income stream.
Personal after-tax super
contribution – a super contribution
made by you from your after-tax pay
or savings.
Note: The Government proposed in the
2009 Federal Budget that a Medicare levy
surcharge of up to 1.5% will be payable by
higher income earners from 1 July 2010.
4 Excludes Medicare levy.
5 This cap is equal to six times the concessional contribution (CC) cap that is available to people under
age 50 (see page 26) and will change when the CC cap is indexed.
Page 27
R
S
T
Reportable employer super
contributions – certain super
contributions (including salary sacrifice)
that must be identified by an employer
and included on an employee’s
Payment Summary.
Salary sacrifice – an arrangement
made with an employer where you forgo
part of your pre-tax salary in exchange
for receiving certain benefits (eg
superannuation contributions).
Taxable component – the remainder
of a superannuation benefit after
allowing for the tax free component.
The amount of tax payable on the
taxable component may depend on the
age of the recipient, the dependency
status of the beneficiary (death benefits
only) and the size of the benefit.
Restrictions on non-death
benefits from superannuation –
Government regulations restricting
payments from super funds apply to
all non-death benefits paid under the
policy. This means the Trustee may
not pass benefits to you until they have
satisfactory proof that you will never be
able to work again in any occupation you
are reasonably suited to by education,
experience or training, or until you
satisfy one of the other conditions of
release prescribed by law.
If you do not satisfy a condition of
release, the Trustee of the super fund
must preserve the benefit in the fund
until they are allowed to release it.
Should this situation arise, the Trustee
of the super fund will write to you,
explaining your options in relation to the
preserved benefit.
Examples of some conditions of release
are as follows:
• you have reached your preservation
age (between 55 and 60,
depending on your date of birth)
and have permanently retired from
the workforce
• you stop working for your last employer
on or after reaching age 60, or
• you turn 65.
Where you are entitled to receive a
non-death benefit, the Trustee of the
super fund will pay the benefit to you.
Alternatively, you may ask for the benefit
to be transferred to a super fund of
your choice.
Self-employed – to qualify as selfemployed, you need to receive less
than 10% of your assessable income,
reportable fringe benefits and reportable
employer super contributions from
eligible employment.
Spouse contribution tax offset – a
tax offset of up to $540 pa that may be
available to you if you make personal
after-tax super contributions on behalf of
your low-income or non-working spouse.
The amount of the tax offset will depend
on your spouse’s income 6, as follows:
Spouse’s Contribution You can
income6 amount
claim a tax
offset of:
$10,800
$0 – $3,000
18% of
or less
contributions
$10,800
$3,000 or
$540
or less
more
maximum
$10,801 – Any amount
An amount
$13,799
equal to the
lesser of:
• spouse
contribution
x 18%, or
• [$3,000 –
(spouse’s
income 6 –
$10,800)]
x 18%
$13,800
Any
Nil
or more
amount
Superannuation Guarantee (SG)
contributions – the minimum super
contributions an employer is required
to make on behalf of eligible employees
(generally 9% of salary).
6 Includes assessable income, reportable fringe benefits and reportable employer super contributions.
Page 28
Taxable income – income (including
capital gains) you receive after allowing
for tax deductions.
Tax deduction – an amount that is
deducted from your assessable income
before tax is calculated.
Tax free component – that part
of a superannuation benefit that is
received tax-free.
MLC has a range of other
smart strategy guides.
Ask your financial adviser
for more details.
Smart strategies
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business owners
2010
Smart strategies for
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2009
Smart strategies
for using debt
Smart strategies
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Smart strategies
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2010
2010
2010
Smart strategies
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business owners
Smart strategies
for growing
your wealth
Smart strategies
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Smart strategies
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Important information
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(MLC) ABN 90 000 000 402 AFSL 230694,
105–153 Miller Street, North Sydney, NSW 2060.
It has been published as an information service
without assuming a duty of care. In respect to any
general advice contained in this booklet which
relates to a specific product, you should obtain
the relevant Product Disclosure Statement (PDS)
for each product and consider the information
contained in that document before deciding
whether to acquire or continue to hold that product.
Any advice in this brochure has been prepared
without taking into account your objectives,
financial situation or needs. Because of this, you
should, before acting on any advice in this brochure,
consider whether it is appropriate to your objectives,
financial situation and needs.
While we believe the information in this booklet
is currently accurate, MLC does not accept any
liability for any inaccuracy or for financial decisions
or any actions that you may take as a result of
reading this information.
You can only apply for MLC Personal Protection
Portfolio or MLC Life Cover Super insurance
by completing the application form attached
to a current MLC Personal Protection Portfolio
or MLC Life Cover Super PDS. Applications are
subject to acceptance by MLC. You can only
apply for MLC Group Insurance by completing the
Proposal Form in the current MLC Group Insurance
PDS. All applications for MLC Group Insurance are
subject to acceptance.
An MLC Personal Protection Portfolio, MLC Life
Cover Super, or MLC Group Insurance policy does
not represent a deposit with or a liability of National
Australia Bank Limited ABN 56 000 176 116
AFSL 230699 or any other company of the
National Australia Group of companies (other than
a liability of MLC Limited as insurer).
Neither National Australia Bank Limited, nor any
other member of the National Australia Group of
companies (other than MLC Limited as insurer)
guarantees or accepts liability in respect of MLC
Personal Protection Portfolio, MLC Life Cover Super,
or MLC Group Insurance.
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Protection Portfolio and MLC Group Insurance.
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AFSL 230702 is the issuer of MLC Life Cover
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to members of The Universal Super Scheme of
which MLC Nominees Pty Limited is the trustee.
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their registered office at 105–153 Miller Street,
North Sydney, NSW 2060 and are members
of the National Australia Group of companies.
Information about and the offer of interests in each
of these products is contained in the relevant PDS
for each product, copies of which are available
from the relevant issuer at the above address or by
phoning 132 652.
For more information contact MLC
Telephone: 132 652 (inside Australia)
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Monday–Friday, EST
Website: mlc.com.au
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North Sydney NSW 2059
Address: Ground Floor
MLC Building 105–153 Miller St
North Sydney NSW 2060
52891 MLC 02/10